UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                   FORM 10-QSB

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934

                    For the Quarter Ended September 30, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT


                       Commission File Number: 000-1084047


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


            California                                    95-4691878
  ---------------------------------           ---------------------------------
    (State or other jurisdiction              (IRS Employer Identification No.)
  of incorporation or organization)


                               5072 North 300 West
                                 Provo, UT 84604
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (801) 371-0755
                           ---------------------------
                           (Issuer's telephone number)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934,
during the preceding 12 months (or such shorter  period that the  Registrant was
required  to file  such  report(s)),  and (2) has been  subject  to such  filing
requirements for the past 90 days.

                                  Yes  X     No

There were 52,897,186 shares of common stock,  $0.001 par value,  outstanding as
of November 19, 2003.



<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                   FORM 10-QSB



                        QUARTER ENDED SEPTEMBER 30, 2003

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----
                          PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

   Condensed Consolidated Balance Sheets - September 30, 2003 (Unaudited)
     and December 31, 2002...............................................     3

   Condensed Consolidated Statements of Operations (Unaudited) for the
     Three and ine Months Ended September 30, 2003 and 2002..............     4

   Condensed Consolidated Statement of Stockholders' Equity/(Deficiency)
     (Unaudited) for the Nine Months Ended September 30, 2003............     5

   Condensed Consolidated Statements of Cash Flows (Unaudited) for the
     Nine Months Ended September 30, 2003 and 2002.......................     6

   Notes to the Condensed Consolidated Financial Statements (Unaudited)..     7

Item 2. Management's Discussion and Analysis of Financial Condition and
   Results of Operations.................................................    21

Item 3. Controls and Procedures..........................................    30


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings................................................    32

Item 3. Defaults upon Senior Securities..................................    33

Item 6. Exhibits and Reports on Form 8-K.................................    33

Signatures...............................................................    34

<PAGE>



PART I - FINANCIAL INFORMATION
         ---------------------

Item 1.  Financial Statements
         --------------------

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                     (Unaudited)
                                                                    September 30,      December 31,
                               ASSETS                                     2003             2002
                                                                    -------------     -------------

CURRENT ASSETS
<S>                                                                 <C>               <C>
    Cash                                                            $   3,857,987     $   1,338,345
    Accounts Receivable                                                   154,499            14,700
    Investments - available for sale                                            -                 -
    Other Receivables                                                     114,868            59,772
    Prepaid Expenses                                                       23,586            67,179
    Other Assets                                                        1,140,874           706,486
                                                                    -------------     -------------
       Total Current Assets                                             5,291,814         2,186,482
                                                                    -------------     -------------
Property and Equipment, Net                                               455,167           379,349
                                                                    -------------     -------------
Other Assets
    Goodwill                                                            1,088,686         1,088,686
    Deferred income taxes - Non-current                                         -                 -
    Deposits                                                               42,965            48,698
                                                                    -------------     -------------
    Total Assets                                                    $   6,878,632     $   3,703,215
                                                                    =============     =============

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Line of Credit                                                  $       3,740     $      40,660
    Current maturities of long-term debt                                   11,508            44,274
    Accounts payable and accrued expenses                               1,208,534           861,366
    Deferred revenue                                                      512,455           256,148
    Other current liabilities                                           1,069,796            83,278
    Accrued income taxes                                                  471,890                 -
    Reserve for sales returns and allowances                              588,686           220,266
                                                                    -------------     -------------
        Total current liabilities                                       3,866,609         1,505,992
                                                                    -------------     -------------
        Note Payable - Long-term                                           66,272            87,223
                                                                    -------------     -------------
Total liabilities                                                       3,932,881         1,593,215

STOCKHOLDERS' EQUITY
    Preferred stock - authorized, 25,000,000 shares of $1.00
    stated value;
      Series A preferred stock; issued and outstanding,
      1,697,167 shares                                                  1,650,500         1,650,500
      Series B preferred stock; issued and outstanding,
      328,491 shares                                                      408,491           328,491
    Common stock - authorized, 100,000,000 shares of $.001 par
      value; issued and outstanding, 52,897,186 and 52,481,289
      shares, respectively                                                 52,897            52,481
    Additional paid-in capital                                         13,136,970        13,119,719
    Accumulated deficit                                               (12,303,107)      (13,041,191)
                                                                    -------------     -------------
Total Stockholders' Equity                                              2,945,751         2,110,000
                                                                    -------------     -------------
Total Liabilities and Stockholders' Equity                          $   6,878,632     $   3,703,215
                                                                    =============     =============
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                      3
<PAGE>



                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   For The                       For The
                                             Three Months Ended              Nine Months Ended
                                         ----------------------------  ----------------------------
                                         September 30,  September 30,  September 30,  September 30,
                                            2003           2002             2003           2002
                                         -------------  -------------  -------------  -------------
<S>                                      <C>            <C>            <C>            <C>
Sales                                    $ 9,232,162    $ 4,225,488    $ 21,723,365   $ 10,014,523

Cost of Sales                              4,612,375      1,528,534      10,674,800      3,650,218
                                         -----------    -----------    ------------   ------------

Gross profit                               4,619,787      2,696,954      11,048,565      6,364,305
                                         -----------    -----------    ------------   ------------

Operating expenses
  General and administrative               1,832,115      1,069,191       5,246,503      2,727,968
  Selling                                  1,958,032        729,388       4,716,849      2,011,587
  Loss on investment securities                    -        687,750               -        687,750
  Non-recurring expenses                           -              -               -        169,578
                                         -----------    -----------    ------------   ------------

        Total Operating Expenses           3,790,147      2,486,329       9,963,352      5,596,883
                                         -----------    -----------    ------------   ------------

Income (Loss) from Operations                829,640        210,625       1,085,213        767,422
                                         -----------    -----------    ------------   ------------
Other Income/(Expense)
  Other income                                11,588        154,105          86,460        172,197
  Interest income                             26,131              -          61,962              -
  Interest expense                            (9,993)        (2,500)        (23,661)        (9,055)
                                         -----------    -----------    ------------   ------------
       Total Other Income (Expense)           27,726        151,605         124,761        163,142
                                         -----------    -----------    ------------   ------------

Income (Loss) Before Income Taxes            857,366        362,230       1,209,974        930,564
                                         -----------    -----------    ------------   ------------

Income Taxes                                 334,373        137,048         471,890        357,048
                                         -----------    -----------    ------------   ------------

Net income                               $   522,993    $   225,182     $   738,084   $    573,516
                                         ===========    ===========     ===========   ============

Basic and Diluted Income (Loss) per
Share                                    $      0.01    $      0.00    $       0.01   $       0.01
                                         ===========    ===========    ============   ============

Weighted Average Number of Common Shares
Used in Per Share Calculation (basic and
diluted)                                  52,897,186     48,402,172      52,846,602     48,336,469
                                         ===========    ===========    ============   ============
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.




                                       4
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
                              EQUITY/(DEFICIENCY)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                     Preferred Stock Series A       Preferred Stock Series B            Common Stock
                                    ---------------------------   ----------------------------  ----------------------------
                                       Shares         Amount         Shares         Amount         Shares          Amount
                                    ------------   ------------   ------------   -------------  -------------   ------------
<S>                                    <C>         <C>                 <C>       <C>               <C>          <C>
Balance - December 31, 2001            1,850,000   $  1,850,000        248,491   $     248,491     48,285,283   $     48,285

Issuance of Common stock
   for services provided                       -              -                                         4,000              4

Issuance of Common stock                       -              -                                        40,730             41

Issuance of Common stock
   for services provided                                                                                6,125              6

Issuance of Common Stock
   for software                                                                                        53,845             54

Issuance of Common stock                                                                               24,375             24

Issuance of Common Stock
   for services provided                                                                              291,250            291

Conversion of Series A Preferred
    Stock to Common Stock               (199,500)      (199,500)                                    3,000,000          3,000

Issuance of Common stock
   for services provided                                                                                5,000              5

Issuance of Common stock                                                                               76,960             77

Issuance of Common stock                                                                               23,169             23

Issuance of Common stock
   for services provided                                                                               39,702             40

Series A Preferred Stock Dividend                                                                     107,568            108

Series A Preferred Stock Dividend                                                                      30,734             31

Series A Preferred Stock Dividend                                                                     420,054            420

Series B Preferred Stock Dividend                                                                      72,494             72

Issuance of Series B Preferred
   Stock for Executive Compensation                                     80,000          80,000

Unrealized loss on investments

Unrealized loss on investments
recognized in income due to
other than temporary impairment

Net income for the year
ended December 31, 2002                        -              -                                             -              -
                                    ------------   ------------   ------------   -------------  -------------   ------------
Balance - December 31, 2002            1,650,500   $  1,650,500        328,491   $     328,491     52,481,289   $     52,481
                                    ============   ============   ============   =============  =============   ============


Issuance of Common stock
   for prepaid public relations                                                                       233,333            233

Issuance of Common stock
   for charitable contribution                                                                        133,333            134

Issuance of Series B Preferred
   Stock for Executive Compensation                                     80,000          80,000

Issuance of Common Stock
   for services provided                                                                               49,231             49

Net income for the nine months
ended September 30, 2003                       -              -                                             -              -
                                    ------------   ------------   ------------   -------------  -------------   ------------
Balance as of September 30, 2003       1,650,500   $  1,650,500        408,491       $ 408,491     52,897,186       $ 52,897
                                    ============   ============   ============   =============  =============   ============

                                       5
<CAPTION>
(table continued)                                                    Retained
                                      Additional       Accum.        Earnings         Total
                                       paid-in-      Comprehen-       (Accum.      Stockholders'
                                       capital       sive Loss        Deficit)         Equity
                                     ------------   -------------  -------------   ------------
<S>                                  <C>            <C>               <C>          <C>
Balance - December 31, 2001          $ 12,626,679   $    (204,354)    $ (290,941)  $ 14,278,160

Issuance of Common stock
   for services provided                   14,196               -              -         14,200

Issuance of Common stock                   36,951               -              -         36,992

Issuance of Common stock
   for services provided                   20,644               -              -         20,650

Issuance of Common Stock
   for software                            69,946                                        70,000

Issuance of Common stock                   23,219                                        23,243

Issuance of Common Stock
   for services provided                   21,553                                        21,844

Conversion of Series A Preferred
    Stock to Common Stock                 196,500                                             -

Issuance of Common stock
   for services provided                      370                                           375

Issuance of Common stock                   18,939                                        19,016

Issuance of Common stock                    3,992                                         4,015

Issuance of Common stock
   for services provided                    4,760                                         4,800

Series A Preferred Stock Dividend          13,892                        (14,000)             0

Series A Preferred Stock Dividend           3,969                         (4,000)            (0)

Series A Preferred Stock Dividend          54,250                        (54,670)             -

Series B Preferred Stock Dividend           9,859                         (9,931)             1

Issuance of Series B Preferred
   Stock for Executive Compensation                                                      80,000

Unrealized loss on investments                         (1,424,896)                   (1,424,896)

Unrealized loss on investments
recognized in income due to
other than temporary impairment                         1,629,250                     1,629,250

Net income for the year
ended December 31, 2002                         -               -    (12,667,649)   (12,667,649)
                                     ------------   -------------  -------------   ------------
Balance - December 31, 2002          $ 13,119,719   $           -  $ (13,041,191)  $  2,110,000
                                     ============   =============  =============   ============


Issuance of Common stock
   for prepaid public relations             2,017                                         2,250

Issuance of Common stock
   for charitable contribution             10,533                                        10,667

Issuance of Series B Preferred
   Stock for Executive Compensation                                                      80,000

Issuance of Common Stock
   for services provided                    4,701                                         4,750

Net income for the nine months
ended September 30, 2003                        -               -        738,084        738,084
                                     ------------   -------------  -------------   ------------
Balance as of September 30, 2003     $ 13,136,970             $ -   $(12,303,107)   $ 2,945,751
                                     ============   =============  =============   ============
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       5
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         For the Nine Months
                                                                        Ended September 30,
                                                                    ---------------------------
                                                                        2003            2002
                                                                    -----------      ----------
<S>                                                                 <C>               <C>
Cash flows from operating activities
  Net income (loss)                                                 $   738,084       $ 573,516
  Adjustments to reconcile net income (loss) to
      net cash provided by operating activities
    Depreciation and amortization                                       150,497          83,016
    Sale of software platform for investment securities                     -          (875,000)
    Write down on investment securities                                     -           687,750
    Prepaid non-cash executive compensation                              20,000             -
    Allowance for doubtful accounts                                         -           132,000
    Non-cash expenses                                                    77,667          34,850
    Net change in operating assets and liabilities
        Accounts receivable                                            (139,799)       (594,133)
        Prepaid expenses                                                 43,593         (13,664)
        Other receivables                                               (55,096)        (10,999)
        Other current assets                                           (434,388)       (428,336)
        Deposits and other assets                                         5,733         (20,397)
        Accounts payable and accrued expenses                           347,169         396,700
        Deferred revenue                                                256,307         252,956
        Other current liabilities                                       986,518             -
        Reserve for returns and allowances                              368,420         179,472
        Accrued federal and state income tax                            471,890         374,362
                                                                    -----------      ----------
        Net cash provided by/(used in) operating activities           2,836,595         772,093
                                                                    -----------      ----------

Cash flows from investing activities
  Capital expenditures                                                 (226,316)       (362,520)
                                                                    -----------      ----------
        Net cash used in investing activities                          (226,316)       (362,520)
                                                                    -----------      ----------

Cash flows from financing activities
  Issuance of common stock                                                  -            60,235
  Proceeds from borrowings on line of credit                                -            50,000
  Proceeds from borrowings under note payable                             8,085         155,360
  Repayments under line of credit agreement                             (36,920)         (6,758)
  Repayments on notes payable                                           (61,802)        (14,555)
        Net cash provided by/(used in) financing activities             (90,637)        244,282
                                                                    -----------      ----------

Net Increase (Decrease) in Cash and Cash Equivalents                  2,519,642         653,855

Cash and Cash Equivalents at Beginning of Year                        1,338,345         282,307
                                                                    -----------      ----------

Cash and Cash Equivalents at End of Year                            $ 3,857,987      $  936,162
                                                                    ===========      ==========
Supplemental Cash Flow Information:
Unrealized loss on securities available for sale                    $       -        $      -
                                                                    ===========      ==========
Issuance of common stock for software                                       -            70,000
                                                                    ===========      ==========

Issuance of common stock for services/
  charitable contributions                                               17,667          34,850
                                                                    ===========      ==========

Issuance of Series B Preferred Stock as
  executive Compensation                                            $    80,000      $      -
                                                                    ===========      ==========
</TABLE>

             The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       6
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE A  - COMPANY DESCRIPTION

     Innovative  Software  Technologies,  Inc. (the "Company" or  "Innovative"),
     operating in one business  segment,  is a software company  specializing in
     small business and financial eLearning tools and consulting  services.  The
     Company's  main  products  are:  EMS,  a turnkey  web  builder,  e-commerce
     solution  and data  management  system  targeted to small  businesses;  The
     Financial  Toolkit 1.0, an  integrated  financial  services  and  education
     program;  Skills in Demand,  consisting of eLearning  courses that cater to
     small  business  owners  and  entrepreneurs;  OneCrypt,  an email  and file
     encryption  software  product;  and  eTaxNet,  a provider of online tax and
     consulting  services.  In addition  for most of its  software  and learning
     products the Company offers technical support and coaching services.

     The  Company's  management  combines  its  expertise in the field of direct
     marketing,  software, coaching and sales management to small businesses and
     consumers.  The combination of marketing and  technological  support offers
     clients complete  end-to-end  business services  solutions  designed to fit
     their e-business transactional technology training needs.

     On April 16, 2001, Innovative, with immaterial net assets, acquired 100% of
     the  outstanding  common  stock  of  Hackett  Media,  Inc.  (Hackett).  The
     acquisition  resulted  in the  owners  and  management  of  Hackett  having
     effective  operating  control of the combined entity after the acquisition,
     with the prior Innovative investors continuing as passive investors.

     Under  accounting  principles  generally  accepted in the United States (US
     GAAP),  the  above  noted   acquisition  is  considered  to  be  a  capital
     transaction in substance, rather than a business combination.  That is, the
     acquisition  is  equivalent to the issuance of stock by Hackett for the net
     monetary assets of Innovative,  accompanied by a  recapitalization,  and is
     accounted for as a change in capital structure. Accordingly, the accounting
     for  the  acquisition  is  identical  to  that  resulting  from  a  reverse
     acquisition,  except that no goodwill intangible is recorded. Under reverse
     takeover accounting,  the post  reverse-acquisition  comparative historical
     financial   statements  of  the  "legal  acquirer"   (Innovative   Software
     Technologies),  are  those of the  "legal  acquiree"  (Hackett)  (i.e.  the
     accounting acquirer).

     On December 31, 2001, the Company  purchased all of the outstanding  shares
     of Energy Professional Marketing Group, Inc. (EPMG), a technology marketing
     company  specializing  in  product  fulfillment  for  outside  vendors  and
     technology and database marketing, based in Provo, Utah. In connection with
     the acquisition the Company issued  1,500,000  shares of Series A preferred
     stock and 3,529,412 shares of common stock.


                                       7
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A  -  COMPANY DESCRIPTION - Continued

     The purchase  price for the  acquisition  of EPMG has been allocated on the
     fair value basis on the acquisition date as follows:

      Assets acquired:

      Goodwill..............................$13,549,932
      Net assets acquired...................$    25,068
                                            -----------

      Total Assets Acquired.................$13,575,000
                                            ===========

      Total Purchase Price..................$13,575,000
                                            ===========


     The acquisition described above was accounted for as a purchase transaction
     in  accordance  with  Statement of Financial  Accounting  Standards No. 141
     (SFAS  141),  "Business  Combinations,"  and,  accordingly,  the results of
     operations and assets and liabilities of the acquired  company are included
     in the  consolidated  financial  statements  from the  acquisition  date. A
     portion of the goodwill has been written down by the Company as of December
     31, 2002.  See Note B to the Condensed  Consolidated  Financial  Statements
     (Unaudited).


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of the Company's  significant  accounting policies applied in the
     preparation of the accompanying financial statements follows.

     1.   Recent Accounting Pronouncements
          --------------------------------

      In June 2001, the Financial  Accounting  Standards  Board ("FASB")  issued
      Statement  of  Financial   Accounting  Standards  ("SFAS")  141,  Business
      Combinations,  and SFAS 142, Goodwill and Intangible  Assets.  SFAS 141 is
      effective  for all business  combinations  completed  after June 30, 2001.
      SFAS 142 is effective for fiscal years  beginning after December 15, 2001;
      however,  certain provisions of this Statement apply to goodwill and other
      intangible  assets acquired between July 1, 2001 and the effective date of
      SFAS 142. Major  provisions of these  Statements and their effective dates
      for the Company are as follows:

      o  All business  combinations  initiated  after June 30, 2001 must use the
         purchase  method of  accounting.  The  pooling of  interests  method of
         accounting is prohibited except for transactions  initiated before July
         1, 2001.
      o  Intangible  assets acquired in a business  combination must be recorded
         separately from goodwill if they arise from  contractual or other legal
         rights  or are  separable  from the  acquired  entity  and can be sold,
         transferred,  licensed, rented or exchanged,  either individually or as
         part of a related contract, asset or liability.
      o  Goodwill,  as well as intangible assets with indefinite lives, acquired
         after June 30, 2001, will not be amortized.
      o  Effective  January 1, 2002,  all  previously  recognized  goodwill  and
         intangible  assets with  indefinite  lives will no longer be subject to
         amortization.


                                      8
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



      o  Effective  January  1,  2002,   goodwill  and  intangible  assets  with
         indefinite  lives will be tested for  impairment  annually and whenever
         there is an impairment indicator.
      o  All acquired  goodwill must be assigned to reporting units for purposes
         of impairment testing and segment reporting.

      As of January 1, 2002,  which is the beginning of fiscal 2002, the Company
      will not amortize the goodwill which it recognized in connection  with the
      acquisition of EPMG. The Company's  goodwill was subject to a transitional
      impairment  test as of December  31, 2001 and an annual  impairment  test,
      using a two-step process prescribed by SFAS No. 142. The Company completed
      the  transitional  impairment  test for EPMG at September  30,  2002,  the
      applicable  reporting  unit,  and no  impairment  of goodwill was found to
      exist as of the beginning of fiscal 2002.

      During  2002,   the  trading  price  of  the  Company's   stock   declined
      significantly,  raising questions about whether the fair value of goodwill
      exceeds its carrying  amount.  An  evaluation  of the  carrying  amount of
      goodwill was  conducted  during the 4th quarter  2002,  which  included an
      evaluation  of whether the decline in the trading  price of the  Company's
      stock is other than temporary.  The Company determined that the decline in
      its trading price was other than  temporary and subsequent to December 31,
      2002, engaged an independent  valuation firm to perform a valuation of the
      Company.  This  resulted  in a  write-down  in  goodwill by the Company of
      $12,461,246 as of December 31, 2002.

      In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
      Obligations".  SFAS 143 applies to all entities,  including rate-regulated
      entities,  that have legal obligations associated with the retirement of a
      tangible  long-lived asset that result from  acquisition,  construction or
      development  and  (or)  normal  operations  of  the  long-lived  asset.  A
      liability for an asset retirement  obligation  should be recognized if the
      obligation  meets the  definition  of a  liability  and can be  reasonably
      estimated.  The initial  recording  should be at fair  value.  SFAS 143 is
      effective for financial statements issued for fiscal years beginning after
      June 15, 2002, with earlier application encouraged.  The provisions of the
      Statement  are not  expected  to have a material  impact on the  financial
      condition or results of operations of the Company.

      In August 2001, the FASB issued SFAS 144,  "Accounting  for the Impairment
      or  Disposal  of  Long-Lived  Assets".   SFAS  144  retains  the  existing
      requirements to recognize and measure the impairment of long-lived  assets
      to be held and used or to be disposed of by sale. However,  SFAS 144 makes
      changes to the scope and  certain  measurement  requirements  of  existing
      accounting  guidance.  SFAS 144 also changes the requirements  relating to
      reporting the effects of a disposal or  discontinuation  of a segment of a
      business. SFAS 144 is effective for financial statements issued for fiscal
      years  beginning  after December 15, 2001 and interim periods within those
      fiscal  years.  The adoption of this  Statement did not have a significant
      impact on the financial condition or results of operations of the Company.

      In April 2002,  the FASB issued SFAS No. 145 (SFAS 145).  Any gain or loss
      on extinguishment of debt that was classified as an extraordinary  item in
      prior  periods  presented  that does not meet the  criteria  in APB 30 for
      classification  as an extraordinary  item shall be reclassified.  SFAS 145
      also  amends  SFAS 13,  Accounting  for  Leases as well as other  existing
      authoritative   pronouncements  to  make  various  technical  corrections,
      clarify meanings, or describe their


                                       9
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


      applicability under changed conditions. Certain provisions of SFAS 145 are
      effective for  transactions  occurring  after May 15, 2002 while other are
      effective for fiscal years  beginning after May 15, 2002. The Company does
      not expect SFAS 145 to have a material  effect on its financial  condition
      or results of operations.

      In June  2002,  the  FASB  issued  SFAS No.  146,  "Accounting  for  Costs
      Associated  with Exit or Disposal  Activities"  (SFAS 146).  This standard
      addresses  financial  accounting and reporting for costs  associated  with
      exit or disposal activities.  SFAS 146 requires that a liability for costs
      associated  with an exit or  disposal  activity  be  recognized  when  the
      liability is incurred.  The  provisions of SFAS 146 are effective for exit
      or disposal  activities  that are initiated by the Company after  December
      31, 2002.  The Company does not expect SFAS 146 to have a material  effect
      on its financial condition or results of operations.

      In October 2002,  the FASB issued SFAS No. 147,  "Acquisitions  of Certain
      Financial   Institutions"   (SFAS  147).  This  standard  relates  to  the
      application of the purchase  method of accounting to all  acquisitions  of
      financial  institutions,  except  transactions  between two or more mutual
      enterprises.  This standard also relates to the application of SFAS 144 to
      certain long-term customer-relationship intangible assets recognized in an
      acquisition  of a  financial  institution,  including  those  acquired  in
      transactions between mutual enterprises.  SFAS 147 is effective on October
      1, 2002. The Company does not expect SFAS 147 to have a material effect on
      its financial condition or results of operations.

      In December 2002, the FASB issued SFAS No. 148 Accounting for  Stock-Based
      Compensation--Transition  and Disclosure  (SFAS 148). This standard amends
      the disclosure and certain transition  provisions of SFAS 123,  Accounting
      for Stock-Based Compensation.  Its disclosure provisions are effective for
      2002 annual  financial  statements for calendar  year-end  companies.  The
      Company  does not expect  that  adoption  of SFAS 148 will have a material
      impact on its financial condition or results of operations.

     2. Interim Condensed Consolidated Financial Statements
        ---------------------------------------------------

      The  accompanying   condensed   consolidated   financial   statements  are
      unaudited. In the opinion of management,  all necessary adjustments (which
      include  only  normal  recurring  adjustments)  have been made to  present
      fairly the financial  position,  results of operations  and cash flows for
      the  periods  presented.  Certain  information  and  disclosures  normally
      included in financial  statements prepared in accordance with US GAAP have
      been  condensed  or omitted.  Accordingly,  these  condensed  consolidated
      financial  statements  should be read in  conjunction  with the  Company's
      financial  statements and notes thereto  included in the Form 10-KSB dated
      December 31,  2002.  The results of  operations  for the nine months ended
      September 30, 2003 are not necessarily indicative of the operating results
      to be expected  for the full year.  The balance  sheet as of December  31,
      2002 has been  derived from the  Company's  audited  consolidated  balance
      sheet as of that date.


                                       10
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



     3. Principles of Consolidation
        ---------------------------

      The accompanying consolidated financial statements include the accounts of
      Innovative   Software   Technologies,   Inc.,  and  the  accounts  of  its
      wholly-owned  subsidiaries,  Energy  Professional  Marketing  Group,  Inc.
      (EPMG),  and Hackett  Media,  Inc.,  as of and for the nine  months  ended
      September 30, 2003. All significant intercompany transactions and balances
      have been eliminated in consolidation.

     4. Revenue Recognition
        -------------------

      The Company  recognizes  revenue  after  delivery of the  product.  To the
      extent the Company  sells  software,  revenue is  recognized in accordance
      with Statement of Position 97-2, Software Revenue Recognition,  as amended
      by SOP 98-4 and SOP 98-9 and clarified by Staff Accounting  Bulletin (SAB)
      101 Revenue Recognition in Financial Statements. In most cases this occurs
      the same day  payment is received  from our  customers.  The Company  also
      reserves  for  sales  returns  and   allowances   based  upon   historical
      experience.

      The Company provides  support services for some of its products.  Payments
      received by the  Company  for these  services  are  generally  recorded as
      deferred revenue and recognized over the term of the services.

      The  Company  also  provides  extended  payment  terms  on the sale of its
      software and related coaching for up to two years. Since payments terms on
      these  sales  exceed 12 months,  the fee for the  software  and license is
      presumed  not  to  be  determinable.   In  addition,  the  probability  of
      collection  decreases as the payment terms are extended.  As a result, the
      Company  recognizes  revenue on these sales as the payments are  collected
      from the customer.

     5. Investment Securities
        ---------------------

      All  investment  securities are  classified as  available-for-sale.  These
      investment  securities have been adjusted to their fair market value based
      upon  quoted  market  prices.  Unrealized  holding  gains and  losses  are
      reported as a separate component of stockholder's equity. The Company will
      regularly  perform reviews of the fair value of its investment  securities
      and assess whether there exists any other than temporary impairment.

     6. Property and Equipment
        ----------------------

      Property  and   equipment   are  stated  at  cost,   net  of   accumulated
      depreciation.  Depreciation  is  recognized  using the  straight-line  and
      double-declining  balance  method over the  estimated  useful lives of the
      assets, which range from three to seven years.  Leasehold improvements are
      amortized using the straight-line  method over the lesser of the estimated
      useful lives or remaining lease term.

     7. Use of Estimates
        ----------------

      To comply with US GAAP, the Company makes estimates and  assumptions  that
      effect the amounts  reported in the financial  statements and  disclosures
      made in the accompanying notes. Estimates are used for, but not limited to
      reserves for product returns, the collectibility of accounts

                                       11
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


      receivable  and  deferred  taxes.  The  Company  also  uses  estimates  to
      determine the remaining  economic lives and carrying value of goodwill and
      fixed assets.  Despite our intention to establish  accurate  estimates and
      assumptions, actual results may differ from our estimates.

     8.  Software Development Costs
         --------------------------

      In accordance  with  Statement of Financial  Accounting  Standards No. 86,
      "Accounting  for  Costs  of  Computer  Software  to be  Sold,  Leased,  or
      otherwise  Marketed," software  development costs are expensed as incurred
      until the product is available for general release to customers.  To date,
      the Company's  software has been available for general release  concurrent
      with the establishment of technological  feasibility and, accordingly,  no
      development costs have been capitalized.

      The  Company  capitalizes  costs  related to the  development  of computer
      software  developed or obtained for  internal use in  accordance  with the
      American Institute of Certified Public  Accountants  Statement of Position
      98-1, "Accounting for the Costs of Computer Software Developed or Obtained
      for Internal Use." Costs incurred in the application development phase are
      capitalized  and  amortized  over their  useful  life,  not to exceed five
      years.

     9.  Advertising Costs
         -----------------

      Advertising and promotion costs are expensed as incurred.

     10. Impairment and Long-lived Assets
         --------------------------------
      The Company will  regularly  perform  reviews to determine if the carrying
      values of our  long-lived  assets  are  impaired.  The  reviews  take into
      account  facts  or  circumstances,  either  internal  or  external,  which
      indicate that the carrying value of the asset cannot be recovered.

     11. Income Taxes
         ------------

      The Company records its federal and state tax liability in accordance with
      Financial  Accounting  Standards  Board  Statement No. 109 "Accounting for
      Income   Taxes".   Deferred  taxes  payable  are  recorded  for  temporary
      differences  between the  recognition  of income and  expenses for tax and
      financial reporting purposes, using current tax rates. Deferred assets and
      liabilities  represent the future tax  consequences of those  differences,
      which will either be taxable or deductible when the assets and liabilities
      are recovered or settled.

     12. Cash and Cash Equivalents
         -------------------------

      For purposes of the  statement of cash flows,  the Company  considers  all
      highly liquid debt  instruments  purchased with a maturity of three months
      or less to be cash  equivalents to the extent the funds are not being held
      for investment purposes.

                                       12
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE C - INVESTMENT SECURITIES

The Company held three  investment  securities  during the fiscal  quarter ended
September  30, 2003,  which the Company  acquired in connection  with  strategic
business transactions and relationships.  Our available-for-sale  securities are
carried  at  fair  value  and  unrealized   gains  or  losses  are  included  in
stockholders'  equity. The Company held the following  investment  securities at
September  30, 2003 and  December  31,  2002.  The cost basis of our  investment
securities reflects adjustments for other than temporary impairments in value.

<TABLE>
<CAPTION>
   Investment                          Cost            Gross Unrealized      Estimated
   Securities                          Basis         Gains        Losses     Fair Value
   --------------------------       ---------      ---------     --------    ----------
<S>                                 <C>            <C>           <C>         <C>
   September  30, 2003
   EnSurge, Inc. common stock       $       -      $       -     $      -    $        -

                                    $       -      $       -     $      -    $        -
                                    =========      =========     ========    ==========



   Investment                          Cost            Gross Unrealized      Estimated
   Securities                          Basis         Gains        Losses     Fair Value
   --------------------------       ---------      ---------     --------    ----------
   December 31, 2002
   EnSurge, Inc. common stock       $       -      $       -     $      -    $        -

                                    $       -      $       -     $      -    $        -
                                    =========      =========     ========    ==========
</TABLE>

The Company received EnSurge, Inc. common stock in consideration for the sale of
certain  vintage  furniture  in 2000.  Due to the  decline  in  market  value of
EnSurge, Inc. common stock, the Company considered the carrying value of $26,250
permanently  impaired  which  resulted  in a loss on  investment  securities  of
$26,250 during the year ended December 31, 2002.

The Company received Knowledge Transfer Systems, Inc. common stock from EnSurge,
Inc.  in  consideration  for the sale of four  software  coaching  platforms  to
EnSurge,  Inc. in September - December,  2001. These investment  securities were
recorded at a 30% discount due to restrictions and limitations contained in Rule
144 of the Securities and Exchange  Commission.  The primary restriction relates
to the one-year holding period of the investment  securities after the effective
date of sale.  As of December 31, 2002,  the  one-year  holding  period on these
investment  securities  expired and the investment  securities  were recorded at
100% of their fair market value. Due to the decline in market value of Knowledge
Transfer Systems,  Inc. common stock, the Company  considered the value of these
securities  permanently  impaired  and wrote down the entire  carrying  value of
these  investment  securities as of December 31, 2002. The reduction in carrying
value  on  these  investment  securities  resulted  in a loss on  investment  of
$728,000  during the year ended  December 31, 2002.  Shane  Hackett,  who is the
President  and Chief  Executive  Officer of the Company,  was the  President and
Chief  Executive  Officer of EnSurge,  Inc. from November 1, 1999 until February
28, 2001, and owned 7,725,000 shares of the common stock of EnSurge, Inc. during
the time of the transactions in 2001, which then constituted  approximately nine
percent (9%), of the outstanding common stock of EnSurge, Inc.

The Company received 875,000 Knowledge  Transfer Systems,  Inc. preferred shares
with a stated value of $1.00 per share from Knowledge Transfer Systems,  Inc. on
September  23, 2002 as  consideration  for the sale of the Business  Development
Series,  e-learning content and software.  The preferred shares are

                                       13
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


convertible,  at the discretion of the Company,  to Knowledge  Transfer Systems,
Inc. common stock at 95% of the fair market value of Knowledge Transfer System's
common stock based on a five day average  preceding the date of conversion.  Due
to the disclosure by the management of Knowledge  Transfer Systems,  Inc. of the
possible  bankruptcy of its  wholly-owned  subsidiary,  KT Solutions,  Inc., the
Company considered the value of these securities  permanently impaired and wrote
down the entire carrying value of these investment securities as of December 31,
2002. The reduction in carrying value on these investment securities resulted in
a loss on investment of $875,000  during the year ended  December 31, 2002.  The
Company has  retained a  valuation  firm to  determine  the value of the 875,000
shares of preferred  stock of the Knowledge  Transfer  Systems,  Inc., as of the
time of their  transfer to the Company on September  23, 2002,  to determine the
tax consequences of the transaction. See Note I - Commitments and Contingencies.

At the time of the sale of the Business Development Series to Knowledge Transfer
Systems,  Inc. for 875,000 shares of Knowledge Transfer Systems,  Inc. preferred
stock, there was no related party relationship  between the companies and/or the
officers and directors of the companies except for the interest described below.
According to the Form 10-KSB of Knowledge Transfer Systems,  Inc. for the period
ended December 31, 2002, EnSurge,  Inc.  beneficially owned 2,600,000 shares, or
5.1% of the outstanding  common stock of Knowledge  Transfer Systems,  Inc., and
according to the Form 10-KSB of Knowledge Transfer Systems,  Inc. for the period
ended December 31, 2001, EnSurge,  Inc.  beneficially owned 5,700,000 shares, or
14.1% of the outstanding common stock of Knowledge Transfer Systems,  Inc. Shane
Hackett,  who is the President and Chief Executive  Officer of the Company,  was
the President and Chief Executive Officer of EnSurge, Inc. from November 1, 1999
until  February  28,  2001,  and owned  7,725,000  shares of the common stock of
EnSurge,  Inc.  during  the time of the  transaction  between  the  Company  and
Knowledge Transfer Systems,  Inc. in 2002, which then constituted  approximately
eight percent (8%), of the outstanding common stock of EnSurge, Inc. Mr. Hackett
continues to own 7,725,000 shares of the common stock of EnSurge, Inc.

During the quarter ended September 30, 2003, the Company entered into a Purchase
and Sale  Agreement  (the  "KT  Purchase  Agreement")  with  Knowledge  Transfer
Systems,  Inc.,  and a Content  License  and Resale  Agreement  (the "KT License
Agreement") with both KT Solutions,  Inc. and Knowledge  Transfer Systems,  Inc.
The  transactions  each  occurred on August 25, 2003.  KT  Solutions,  Inc. is a
subsidiary  of  Knowledge  Transfer  Systems,  Inc.  Pursuant to the KT Purchase
Agreement,  the Company purchased the Business Development Series from Knowledge
Transfer Systems,  Inc. in exchange for the 875,000 shares of Knowledge Transfer
Systems,  Inc.  preferred stock owned by the Company.  The Business  Development
Series  consists of  multimedia  software  titles,  hard copy  titles,  website,
domain, copyright, titles, and all related interests,  including certain product
deliverables, product contracts and product licenses. Pursuant to the KT License
Agreement, the Company obtained a non-exclusive, world-wide license to a line of
KT Solutions,  Inc.  products for resale through the Company's  on-line learning
services,  in exchange for a 35% royalty on product  revenues  recognized by the
Company,  subject to a $125,000  royalty credit as a start-up  concession to the
Company.  The licensed product line consists of training  materials suitable for
access and use by a customer  through  on-line  learning  services.  The initial
license term is for five years and is renewable  year-to-year  thereafter unless
canceled by either  party.  Due to concerns the Company had about the  continued
existence  of KT  Solutions,  Inc. as an  operating  entity,  the  Company  also
obtained a guarantee by its parent,  Knowledge Transfer Systems, Inc., of all of
KT Solutions Inc.'s obligations under the KT License Agreement,  in exchange for
the 1,900,000 shares of Knowledge  Transfer Systems,  Inc. common stock owned by
the Company. As a result of these transactions,  among other things, the Company
has reacquired full ownership of the Business Development Series previously sold
by the Company to Knowledge  Transfer  Systems,  Inc., and the Company no longer
owns any common or  preferred  stock or any other  equity  interest in Knowledge


                                       14
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Transfer Systems,  Inc. The Company did not record any gain or loss with respect
to the  transactions  that occurred  during the quarter that ended Spetember 30,
2003.


NOTE D - PROPERTY & EQUIPMENT

Property and equipment are stated at cost,  net of accumulated  depreciation  as
follows:

                                            September 30,       December 31,
                                                2003                2002
                                            --------------------------------
      Machinery and Equipment...............$  341,243          $ 246,594
      Furniture and Fixtures................    65,263             51,683
      Computer Software.....................   306,785            190,624
      Leasehold improvements................    36,018             34,092
                                            ----------          ---------
                                               749,309            522,993
      Less: Accumulated depreciation
        and amortization....................  (294,142)          (143,644)
                                            ----------          ---------

      Property and Equipment, Net...........$  455,167          $ 379,349
                                            ==========          =========

NOTE E - OTHER ASSETS

The  Company has  established  several  merchant  service  accounts  whereby the
Company processes a high volume of customer sales  transactions  through certain
credit  card  vendors.   These  merchant  service  companies  typically  hold  a
percentage of each sales transaction as a reserve against future  cancellations.
The amount held by these merchant  service  companies  amounts to $1,073,850 and
$706,486 as of September 30, 2003 and December 31, 2002, respectively.

NOTE F - LONG-TERM DEBT

Long-term debt consists of the following:
                                                  September 30,     December 31,
                                                       2003             2002
                                                  -------------     ------------
   Notes payable, financial institution,
   collateralized by telephone equipment,
   principal and imputed interest
   payable in monthly  installments of $1,250
   and $385 respectively, due in August 2004,
   and January 2006.                              $      18,606     $     20,469

   Notes  payable,  financial  institution,
   secured  by a  lien  on  certain
   furniture  and  equipment, principal
   and interest payable  in  monthly
   installments of $2,464 due in July 2005               49,928           67,175


                                       15
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


   Notes payable, financial institution,
   collateralized by Vehicles, principal
   and accrued interest at 7.78% payable
   in monthly installments of principal
   and imputed interest maturing from $217
   to $655 from November 2006 to February 2007            9,246           43,853
                                                  -------------     ------------
                                                         77,780          131,497

   Less Current Maturities                               11,508           44,274
                                                  -------------     ------------

   Long-term - net of current maturities          $      66,272     $     87,223
                                                  =============     ============

The  Company  has  an  unsecured  line  of  credit  facility  with  a  financial
institution for borrowings up to $50,000  expiring  August 31, 2005.  Borrowings
under the line bear  interest at Prime plus 2% (the Prime rate of interest as of
September  30, 2003 was 4.00%).  As of  September  30,  2003,  there was $46,260
available on the credit facility.

NOTE G - CAPITAL TRANSACTIONS

Stock-split - Innovative's Board of Directors  authorized a three-for-one  stock
split on July 11, 2001. This was effective on August 10, 2001 to stockholders of
record on July 31,  2001.  All share and per share  amounts  referred  to in the
financial statements and notes have been restated to reflect this stock split.

Issuance of common stock - The Company issued 40,730, 24,375, 76,960, and 23,169
shares of its common  stock in 2002 through  private  placements  to  individual
foreign investors.

Issuance of Series B preferred  stock - The Company  issued 80,000 shares of its
Series B preferred stock to certain  directors of the Company as compensation at
a stated value of $1.00 per share in 2002.

Issuance of common stock for software - The Company  issued 53,845 shares of its
common stock in 2002 as part of payment  under the terms of a software  purchase
agreement entered into by the Company. The agreement stipulates that the Company
receives  business  management  software  for both the  Internet and real estate
markets as well as hosting and maintenance services.

Stock issued for services - The Company  issued 4,000 shares of its common stock
at a fair  market  value of  $3.55  per  share in the  first  quarter  2002.  In
addition,  the Company issued 6,125 shares of its common stock during the second
quarter 2002 at fair market value of $3.37 per share.

Stock issued for services - The Company  issued  291,250 and 5,000 shares of its
common  stock at a fair market  value of $0.075 per share in the fourth  quarter
2002. In addition,  the Company  issued 39,702 shares of its common stock during
the first  quarter  2003 for  services  rendered  in fourth  quarter  2002 at an
average fair market value of $0.121 per share.

Conversion of Series A Preferred Stock - Two directors of the Company  converted
199,500 shares of Series A preferred  stock to 3,000,000  shares of common stock
during the fourth quarter 2002.  The Series A preferred  stock is convertible to
the  Company's  common stock at 95% of the fair market value of the common stock
at the date of conversion. The Market Price of the Company's common stock on the
date of conversion was $0.07.

                                       16
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Series A Preferred  Stock  Dividend - The Company  issued  558,356 shares of its
common stock as a Series A preferred  stock  dividend  during the fourth quarter
2002. The holders of the shares of Series A Preferred  received dividends at the
rate of 4% per annum payable in shares of the Company's common stock. The number
of shares of common stock  distributed  as a dividend was calculated by dividing
such payment by 95% of the Market Price on the average of the first five trading
days after  January 1 of each year.  The term "Market  Price"  means,  as of any
date,  the average of the daily closing price for the five  consecutive  trading
days ending on such date.  The Company  has  withheld  137,942 of such shares of
common stock payable to two  stockholders in connection with a dispute with such
stockholders.

Series B Preferred  Stock  Dividend - The Company  issued  72,494  shares of its
common stock as a Series B preferred  stock  dividend  during the fourth quarter
2002. The holders of the shares of Series B Preferred  received dividends at the
rate of 4% per annum payable in shares of the Company's common stock. The number
of shares of common stock  distributed  as a dividend was calculated by dividing
such  payment  by 100% of the  Market  Price on the  average  of the first  five
trading days after January 1 of each year. The term "Market Price" means,  as of
any date,  the  average  of the  daily  closing  price for the five  consecutive
trading days ending on such date.

Financing  Agreement - During 2001,  Hackett Media,  Inc. financed its operation
primarily through a Financing Agreement of convertible debt and securities.  The
Financing  Agreement  calls  for  financing  of up to $2.5  million  of which $1
million would be received in increments in 2001, if necessary, and the remaining
$1.5  million  would be received  based upon the  Company's  performance.  As of
September 30, 2002,  $700,000 of the initial $1 million  investment was received
by the Company.  These proceeds were converted to equity securities during 2001.
During the fourth  quarter  2001,  all of the common shares issued in connection
with the  conversion of debt in connection  with the Financing  Agreement  above
were reissued as Series A preferred shares and common shares as follows:  of the
$700,000  invested in 2001,  $350,000 was converted to Series A preferred shares
at a stated  value of $1 per share and the  remaining  $350,000  was reissued as
700,000  shares of common  stock at $0.50 per share.  During the fourth  quarter
2002, the Company passed a Board of Directors'  resolution to formally terminate
the Financing Agreement with Iwasaka Investments, Ltd. due to the non-compliance
by  Iwasaka  Investments,  Ltd.  with the terms of the  agreement.  The  Company
believes that the  termination  of this agreement will have no adverse effect on
the operations of the Company.

Issuance of Series B preferred  stock - The Company  issued 80,000 shares of its
Series  B  preferred  stock to  certain  directors  of the  Company  as  prepaid
executive compensation and executive compensation at a stated value of $1.00 per
share in the  first  quarter  2003.  The  Company  recorded  non-cash  executive
compensation  of $60,000 for the nine  months  ended  September  30,  2003.  The
remaining $20,000 will be incurred during the fourth quarter of 2003.

Stock issued for prepaid  services - The Company  issued  233,333  shares of its
common stock in exchange for $2,250 of prepaid public  relation  services in the
first quarter 2003.

Stock issued for charitable  contribution - The Company issued 133,333 shares of
its common  stock as a charitable  contribution  at a fair market value of $0.08
per share in the first quarter 2003.

Stock issued for services - The Company issued 49,231 shares of its common stock
at a fair  market  value of $0.096  per  share in the  second  quarter  2003 for
professional services rendered.

                                       17
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE H - RELATED PARTY TRANSACTIONS

On  December  31,  2001,  a  Company  executive  and  shareholder   converted  a
non-interest  bearing note  payable  amounting to $248,491 to Series B preferred
stock at a conversion  rate of a $1 per share stated value.  There was no formal
maturity date and there was no interest associated with the note.

Also,  in September - December  2001,  the Company sold four  software  coaching
platforms to NowSeven.com,  Inc., Ziabon,  Inc., SF Acquisition Corp., Inc., and
Ishopper Internet  Services,  Inc., which are subsidiaries of EnSurge,  Inc., in
exchange for investment securities of Knowledge Transfer Systems, Inc. amounting
to $308,000, $133,000, $147,000, and $140,000,  respectively. Shane Hackett, who
is the President and Chief Executive  Officer of the Company,  was the President
and Chief  Executive  Officer  of  Ensurge,  Inc.  from  November  1, 1999 until
February 28, 2001,  and owned  7,725,000  shares of the common stock of EnSurge,
Inc.  during  the time of the  transactions  in  2001,  which  then  constituted
approximately  nine percent  (9%), of the  outstanding  common stock of EnSurge,
Inc.  Due to the decline in market  value of Knowledge  Transfer  Systems,  Inc.
common stock, the Company  considered the value of these securities  permanently
impaired and wrote down the entire carrying value of these investment securities
as of December  31, 2002.  At the time of the sale of the  Business  Development
Series to  Knowledge  Transfer  Systems,  Inc.  for 875,000  Knowledge  Transfer
Systems,  Inc.  preferred  shares in 2002,  EnSurge,  Inc. was a stockholder  of
Knowledge  Transfer  Systems,  Inc.  According  to the Form 10-KSB of  Knowledge
Transfer  Systems,  Inc. for the period ended December 31, 2002,  EnSurge,  Inc.
beneficially  owned 2,600,000 shares, or 5.1% of the outstanding common stock of
Knowledge Transfer Systems,  Inc., and according to the Form 10-KSB of Knowledge
Transfer  Systems,  Inc. for the period ended December 31, 2001,  EnSurge,  Inc.
beneficially owned 5,700,000 shares, or 14.1% of the outstanding common stock of
Knowledge Transfer Systems,  Inc. Shane Hackett,  who is the President and Chief
Executive Officer of the Company,  was the President and Chief Executive Officer
of Ensurge,  Inc.  from  November 1, 1999 until  February  28,  2001,  and owned
7,725,000  shares of the common  stock of EnSurge,  Inc.  during the time of the
transaction  between the Company and Knowledge  Transfer Systems,  Inc. in 2002,
which then  constituted  approximately  eight percent  (8%), of the  outstanding
common stock of EnSurge, Inc. (See Note C: Investment Securities).

During the quarter ended September 30, 2003, the Company entered into a Purchase
and Sale  Agreement  (the  "KT  Purchase  Agreement")  with  Knowledge  Transfer
Systems,  Inc.,  and a Content  License  and Resale  Agreement  (the "KT License
Agreement") with both KT Solutions,  Inc. and Knowledge  Transfer Systems,  Inc.
The  transactions  each  occurred on August 25, 2003.  KT  Solutions,  Inc. is a
subsidiary  of  Knowledge  Transfer  Systems,  Inc.  Pursuant to the KT Purchase
Agreement,  the Company purchased the Business Development Series from Knowledge
Transfer Systems,  Inc. in exchange for the 875,000 shares of Knowledge Transfer
Systems,  Inc.  preferred stock owned by the Company.  The Business  Development
Series  consists of  multimedia  software  titles,  hard copy  titles,  website,
domain, copyright, titles, and all related interests,  including certain product
deliverables, product contracts and product licenses. Pursuant to the KT License
Agreement, the Company obtained a non-exclusive, world-wide license to a line of
KT Solutions,  Inc.  products for resale through the Company's  on-line learning
services,  in exchange for a 35% royalty on product  revenues  recognized by the
Company,  subject to a $125,000  royalty credit as a start-up  concession to the
Company.  The licensed product line consists of training  materials suitable for
access and use by a customer  through  on-line  learning  services.  The initial
license term is for five years and is renewable  year-to-year  thereafter unless
canceled by either  party.  Due to concerns the Company had about the  continued
existence  of KT  Solutions,  Inc. as an  operating  entity,  the  Company  also
obtained a guarantee by its parent,  Knowledge Transfer Systems, Inc., of all of
KT Solutions Inc.'s obligations under the KT License Agreement,  in exchange for
the 1,900,000 shares of Knowledge  Transfer Systems,  Inc. common stock owned by
the Company. As a result of these

                                       18
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


transactions,  among other things,  the Company has reacquired full ownership of
the  Business  Development  Series  previously  sold by the Company to Knowledge
Transfer  Systems,  Inc., and the Company no longer owns any common or preferred
stock or any other  equity  interest in  Knowledge  Transfer  Systems,  Inc. The
Company did not record any gain or loss with  respect to the  transactions  that
occurred during the quarter that ended September 30, 2003.

During 2002,  the Company  initiated the purchase of sales leads from  Education
Success Institute,  Inc. (ESI). ESI is owned and operated by two officers of the
Company's operating subsidiary,  Energy Professional Marketing Group Inc. (Ethan
Andrew  Willis  and  James  Randolph  Garn).  The  Company  paid  ESI a total of
$3,894,816  for sales lead  generation  for the nine months ended  September 30,
2003. In addition, the Company reserved for potential returned sales from ESI in
the amount of $296,140 as of September 30, 2003.  Also,  revenue received by the
Company for ESI's use of merchant  accounts,  office  supplies  and rent totaled
$72,554 for the nine months ended September 30, 2003.


NOTE I - COMMITMENTS AND CONTINGENCIES

Leases
------
In March,  May and September 2002, the Company entered into operating leases for
certain  office  space.  In  October  2003 we  leased  additional  space for our
coaching  office.  The Company  leases space for three separate  locations.  The
total monthly  obligation is $23,601.  Future minimum lease payments under these
operating leases as of September 30, 2003 are as follows:


            Year Ending December 31:
            2003.......................................    71,261
            2004.......................................   239,922
            2005.......................................   173,853
            2006.......................................    37,467
                                                       -----------

            Total......................................$  522,502
                                                       ===========


SEC Investigation
-----------------
As  described  in Part II,  Section  1, on June 24,  2003,  the  Securities  and
Exchange  Commission ("SEC") issued a formal order of investigation with respect
to the Company,  authorizing the  investigation  of certain  securities  matters
relating  to the  Company.  The SEC staff has taken  the  testimony  of  certain
officers  of the Company and has  informed  the Company  that it intends to take
additional testimony.  The SEC staff has also issued additional requests for the
voluntary  production  of  documents.  Prior to the  issuance of the order,  the
Company had voluntarily  provided  documents and information to the SEC staff in
response to informal,  non-public inquiries by the staff. The Company intends to
fully cooperate with the SEC in its investigation.

Legal Proceedings
-----------------
On or about  September  5, 2003, a lawsuit was filed by  Independent  Marketing,
Inc. (IMI) against  certain  employees of the Company.  The lawsuit was filed in
the Fourth  Judicial  District  Court of Utah County,  State of Utah as Case No.
030403929. While the Company was initially named as a Defendant, the Company was
not named in the Amended Complaint filed in this lawsuit, In the lawsuit, IMI is
claiming that these employees have breached  certain  employment and non-compete
agreements  and IMI is  seeking

                                       19
<PAGE>
                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


compensatory damages and injunctive relief.  Although the Company is not a party
to the litigation, because the lawsuit affects certain employees of the Company,
some or all of whom are key  employees,  the  Company's  operating  results  and
competitive  position may be  adversely  affected in the event of a Court ruling
which limits those employees' involvement with the Company.

As disclosed  in Part II, Item 1, James  Randolph  Garn and Ethan Andrew  Willis
have resigned as officers of the Company and as members of the  Company's  Board
of Directors and have informed the Company that they are prepared to file a suit
to  rescind  the  Company's  December  31,  2001  acquisition  from  them of the
Company's  operating  subsidiary,  Energy  Professional  Marketing Group,  Inc.,
unless  the  Company  reaches a  negotiated  compromise  with them  effecting  a
rescission of the acquisition. The Company is not aware of any suit being filed.
The  Company is  investigating  this matter and the parties  have  attempted  to
negotiate a resolution  of this matter.  The  commencement  of litigation or any
adverse determination in such litigation could have a material adverse effect on
the Company's business, financial condition and results of operations.

Valuation of the 2002 Sale of Business Development Series for Stock. As noted in
Note C - Investment  Securities,  the Company has  retained a valuation  firm to
determine  the value of the 875,000  shares of preferred  stock of the Knowledge
Transfer  Systems,  Inc.,  as of the time of their  transfer  to the  Company on
September 23, 2002, to determine the tax  consequences of the  transaction.  The
results of this valuation cannot be predicted at this time. However,  should the
valuation  be  substantially  lower than the  previously  reported  amount,  the
Company may need to restate its SEC filing for the third quarter of 2002 and for
the 2002 year. In the event such a restatement  is required the Company  expects
the effect to be limited as the entire amount of this  consideration was written
off at the end of 2002. However, if the valuation of the preferred stock exceeds
approximately  $300,000,  the Company  will be required to accrue tax  liability
relating to the excess.

NOTE J - CONCENTRATION OF CREDIT RISK

The Company  has  increasingly  relied on ESI to provide the Company  with sales
leads.  As a percentage of the overall  sales leads  provided to the Company for
the three months ended  September  30, 2003,  89% of the leads were  provided by
ESI. This is compared to 57% for the three months ended June 30, 2003.

NOTE K - SUBSEQUENT EVENTS

In October of 2003 we entered  into a capital  lease for the amount of  $139,940
for phone equipment, the term of which is 4 years. In November, 2003 the Company
entered  into an  equipment  lease in the amount of  approximately  $5,000 for 2
years.

                                       20
<PAGE>


Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations
          ----------------------------------------------------------------------

   The  Company  is a  software  company  specializing  in  small  business  and
financial eLearning tools and consulting  services.  The Company's main products
are EMS, a turnkey web builder,  e-commerce  solution and data management system
targeted to small businesses; The Financial Toolkit 1.0, an integrated financial
services  and  education  program;  Skills in Demand,  consisting  of  eLearning
courses that cater to small business owners and  entrepreneurs,  and eTaxNet,  a
provider of online tax and consulting services. In addition, the Company offers,
for most of its software and learning  products,  technical support and coaching
services.

   When used in this discussion, the words "expect(s)", "feel(s)", "believe(s)",
"will", "may",  "anticipate(s)" and similar expressions are intended to identify
forward-looking  statements.  Such  statements  are subject to certain risks and
uncertainties,  and actual results could differ materially from those projected.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  and  are  urged  to  carefully  review  and  consider  the  various
disclosures  elsewhere  in this Form  10-QSB,  including  those set forth  under
"Cautionary Statement Concerning Forward-Looking Statements" below.

Critical Accounting Policies

   The  discussion  and  analysis  of our  financial  condition  and  results of
operations  are  based  upon  the  Company's  condensed  consolidated  financial
statements,  which have been prepared in accordance with  accounting  principles
generally  accepted in the United States of America.  The  preparation  of these
financial  statements  requires the Company to make estimates and judgments that
affect the reported  amounts of assets and  liabilities,  revenues and expenses,
and related  disclosure of contingent  assets and liabilities at the date of the
Company's financial  statements.  Actual results may differ from these estimates
under different assumptions or conditions.

   Critical  accounting  policies  are defined as those that are  reflective  of
significant  judgments and  uncertainties,  and potentially result in materially
different  results  under  different  assumptions  and  conditions.  The Company
believes that its critical  accounting  policies  include those described below.
For a  detailed  discussion  on the  application  of these and other  accounting
policies,  see Note B in the  Notes  to the  Consolidated  Financial  Statements
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002.

      Goodwill and Intangible Assets

   As discussed in Note A in the accompanying consolidated financial statements,
the Company,  on December 31, 2001,  purchased all of the outstanding  shares of
Energy Professional  Marketing Group Inc. (EPMG) for $13.5 million in Innovative
common and Series A preferred stock.

   Purchase  accounting  requires  extensive  use of  accounting  estimates  and
judgments to allocate the purchase  price to the fair market value of the assets
purchased  and   liabilities   assumed.   The  Company  has  accounted  for  its
acquisitions  using the  purchase  method of  accounting.  Values were  assigned
principally to goodwill based upon management's allocation of the purchase price
to EPMG's workforce in place at the date of the transaction.

   Effective  January 1, 2002,  the Company  adopted the  provisions of SFAS No.
142, Goodwill and Other Intangible Assets (SFAS 142). This statement affects the
Company's  treatment  of goodwill and

                                       21
<PAGE>

other intangible  assets.  The statement  requires that goodwill existing at the
date of adoption be reviewed for possible  impairment and that impairment  tests
be  periodically  repeated,  with  impaired  assets  written down to fair value.
Additionally,  existing  goodwill  and  intangible  assets must be assessed  and
classified within the statement's criteria. Intangible assets with finite useful
lives will continue to be amortized over those periods. Amortization of goodwill
and intangible assets with indeterminable lives will cease.

   During 2002, the trading price of the Company's stock declined significantly,
raising  questions about whether the fair value of goodwill exceeds its carrying
amount.  An evaluation of the carrying  amount of goodwill was conducted  during
the 4th quarter 2002, which included an evaluation of whether the decline in the
trading  price of the  Company's  stock is other  than  temporary.  The  Company
determined  that the decline in its trading  price was other than  temporary and
subsequent  to December  31,  2002,  engaged an  independent  valuation  firm to
perform a valuation of the Company. This resulted in a write-down in goodwill by
the  Company  of  $12,461,246  as of  December  31,  2002.  Goodwill  amounts to
$1,088,868 as of September 30, 2003.

      Investment Securities

   Investment  securities  are  considered to be impaired when a decline in fair
value below cost basis is  determined  to be other than  temporary.  The Company
employs a methodology  in evaluating  whether a decline in fair value below cost
basis is other than temporary that considers  available  evidence  regarding its
investment  securities.  In the event that the cost basis of a security  exceeds
its fair value, the Company evaluates,  among other factors: the duration of the
period that,  and extent to which,  the fair value is less than cost basis;  the
financial  health of and business outlook for the investee,  including  industry
and sector performance, changes in technology and operational and financing cash
flow factors; overall market conditions and trends, and the Company's intent and
ability to hold the investment. Once a decline in fair value is determined to be
other than  temporary,  a  write-down  is  recorded  and a new cost basis in the
security  is  established.   Assessing  the  above  factors  involves   inherent
uncertainty.   Accordingly,   write-downs,  if  recorded,  could  be  materially
different  from the actual market  performance  of investment  securities in the
Company's portfolio, if, among other things, relevant information related to the
Company's investment  securities was not publicly available or other factors not
considered  by the  Company  would have been  relevant to the  determination  of
impairment. As discussed in Note C to the accompanying financial statements, the
Company wrote down the value of investment securities by $1,629,250 in 2002. The
new cost basis in the  investment  securities  written-down,  as of December 31,
2002, is $0.

      Revenue Recognition

   The Company recognizes  revenue after delivery of the product.  To the extent
the Company sells  software,  revenue is recognized in accordance with Statement
of Position 97-2, Software Revenue  Recognition,  as amended by SOP 98-4 and SOP
98-9 and clarified by Staff Accounting Bulletin (SAB) 101 Revenue Recognition in
Financial Statements. In most cases this occurs the same day payment is received
from our  customers.  The Company also reserves for sales returns and allowances
based upon historical experience.

      The Company provides  support services for some of its products.  Payments
received by the Company for these  services are  generally  recorded as deferred
revenue and recognized over the term of the services.  The Company estimates the
amount earned for services  based upon the period of time that has elapsed since
the invoice date. For example, if an agreement provides for a ten-week course of
coaching  services,  the Company  estimates  that  one-half of the  revenues for
coaching  services are earned after five weeks. If

                                       22
<PAGE>

the ten-week  course begins five weeks before the end of a fiscal  quarter,  the
Company will recognize one-half of the coaching revenues as revenues received in
the fiscal  quarter and will record  one-half as deferred  revenue.  The Company
makes two  assumptions  in  recognizing  coaching  revenues:  (1) that  coaching
services begin  immediately after the invoice date and (2) that customers do not
make-up missed coaching  sessions.  The Company believes that these  assumptions
are reasonable based upon the Company's experience.

   The Company also provides  extended payment terms on the sale of its software
and related  coaching for up to two years.  Since  payments terms on these sales
exceed 12 months,  the fee for the  software  and license is presumed  not to be
determinable.  In  addition,  the  probability  of  collection  decreases as the
payment terms are extended. As a result, the Company recognizes revenue on these
sales as the payments are collected from the customer.


Results of Operations for the Three Months Ended  September 30, 2003 Compared to
Three Months Ended September 30, 2002

   Sales

   Sales for the three months ended  September 30, 2003 and 2002 were $9,232,162
and $4,225,488,  respectively,  which  represents a 118% increase from the prior
period.  The  Company's  principal  source of revenue for the three months ended
September 30, 2003 consisted of software  product and service sales. The primary
reason for the increase in sales can be attributed to the  consolidation  of all
of its  administrative  and accounting  functions to the Provo,  UT office in an
effort to improve the Company's  fulfillment and shipping operations and improve
corporate  responsiveness.  This  consolidation was completed in September 2002.
This has enabled  the Utah office to greatly  improve its ability to service its
customers.  The Company has experienced substantial increases in sales per sales
associate  as  a  result  of  the   consolidation.   In  conjunction  with  this
consolidation,  the Company has hired additional sales and marketing  associates
which has also positively impacted sales for the nine months ended September 30,
2003. Also, in first quarter 2003, the Company  initiated the utilization of its
training center in Orem, UT to assist its customers in maintaining and expanding
their Internet presence. Among the Company's products and services, sales of the
Company's  personal  finance  products and services  have been  increasing  at a
faster rate than its other products and services.

   Cost of Sales

   Cost of sales for the three  months  ended  September  30,  2003 and 2002 was
$4,612,375 and $1,528,534, respectively,  representing an increase of 202%. Cost
of sales for the three  months  ended  September  30, 2003 and 2002  represented
costs  associated  with the  generation  of sales  leads  and the  providing  of
coaching  services to customers that purchase the Company's  products.  The main
reason for the increase in cost of sales for the three  months  ended  September
30, 2003,  as compared to a year ago for the same period,  can be  attributed to
cost of sales  increasing  in  conjunction  with the  increase  in sales for the
period  as  well as the  rise in the  cost of  generating  sales  leads  and the
providing  of coaching  services  for the same period a year ago.  See  "Related
Party Transactions - Relationship with ESI" below.


                                       23
<PAGE>

   Gross Margin

   Gross profit as a  percentage  of revenues was 50% for the three months ended
September 30, 2003 and 63.8% for the three months ended  September 30, 2002. The
decrease  was  caused  by the rise in costs of  generating  sales  leads and the
providing of coaching services. See "Cost of Sales" above.


   Selling

   Selling  expenses for the three months ended September 30, 2003 and 2002 were
$1,958,032 and $729,388,  respectively,  representing an increase of 168%. These
costs  consisted  primarily of commissions  paid to sales  associates as well as
marketing and  advertising  expenses  associated with key products and services.
The main  reason for the  increase  in selling  costs can be  attributed  to the
increase  in  sales  of  products  and  services  from  new and  existing  sales
associates.  Selling costs have increased as a percentage of sales for the three
months ended September 30, 2003 and 2002.

   General and Administrative

   General and administrative  expenses for the three months ended September 30,
2003 and 2002 were  $1,832,115 and  $1,069,191,  respectively,  representing  an
increase of 71%. The Company's  general and  administration  expenses  consisted
primarily  of salaries  and wages,  professional  and legal fees,  rent,  travel
expenses, payroll taxes, telephone expenses and other general and administrative
expenses  necessary  to support  the  operations  of the  Company in the current
period.  The  primary  reason for the  increase  in general  and  administrative
expenses was attributable to higher administrative wage costs and legal expenses
for the three  months  ended  September  30,  2003.  The Company pays 40% of net
earnings  before taxes into a profit sharing pool that is divided  equally among
three executive officers of the Company and its subsidiaries.

   Income Taxes

   The Company  accrued  $334,373  and  $137,048  for income taxes for the three
months ended September 30, 2003 and 2002, respectively.  The Company's effective
income tax rates were 39% and 36% for the three months ended  September 30, 2003
and 2002, respectively

   Net Income

The Company had net income of $522,993 for the three months ended  September 30,
2003,  a net margin of 5.7% of revenue,  compared to net income of $225,182  for
the three months ended September 30, 2002, a net margin of 5.3% of revenue.  Net
income  increased over the comparable  period in 2002 primarily due to a loss on
investment securities during the comparable period in 2002.



                                       24
<PAGE>

Results of Operations  for the Nine Months Ended  September 30, 2003 Compared to
Nine Months Ended September 30, 2002

   Sales

   Sales for the nine months ended September 30, 2003 and 2002 were  $21,723,365
and $10,014,523,  respectively,  which represents a 117% increase from the prior
period.  The  Company's  principal  source of revenue for the nine months  ended
September 30, 2003 consisted of software  product and service sales. The primary
reason for the increase in sales can be attributed to the  consolidation  of all
of its  administrative  and accounting  functions to the Provo,  UT office in an
effort to improve its fulfillment and shipping  operations and improve corporate
responsiveness.  This  consolidation  was completed in September  2002. This has
enabled the Utah office to greatly improve the Company's  ability to service its
customers.  The Company has experienced substantial increases in sales per sales
associate  as  a  result  of  the   consolidation.   In  conjunction  with  this
consolidation,  the Company has hired additional sales and marketing associates,
which has also  positively  impacted  sales for the first  nine  months of 2003.
Also, in first  quarter  2003,  the Company  initiated  the  utilization  of its
training center in Orem, UT to assist its customers in maintaining and expanding
their Internet presence. Among the Company's products and services, sales of the
Company's  personal  finance  products and services  have been  increasing  at a
faster rate than its other products and services.

   Cost of Sales

   Cost of sales  for the nine  months  ended  September  30,  2003 and 2002 was
$10,674,800 and $3,650,218, respectively, representing an increase of 192%. Cost
of sales for the nine months ended September 30, 2003 and 2002 represented costs
associated  with the  generation  of sales leads and the  providing  of coaching
services to customers that purchase the Company's products.  The main reason for
the increase in cost of sales for the nine months ended  September  30, 2003, as
compared to a year ago for the same period,  can be  attributed to cost of sales
increasing in  conjunction  with the increase in sales for the period as well as
the rise in the cost of  generating  sales leads and the  providing  of coaching
services  for the same period a year ago.  See  "Related  Party  Transactions  -
Relationship with ESI" below.

   Gross Margin

   Gross profit as a percentage  of revenues was 50.9% for the nine months ended
September 30, 2003 and 63.6% for the nine months ended  September 30, 2002.  The
decrease  was caused by the rise in the cost of  generating  sales  leads and of
providing of coaching services for the same period a year ago.

   Selling

   Selling  expenses for the nine months ended  September 30, 2003 and 2002 were
$4,716,849 and $2,011,587, respectively, representing an increase of 134%. These
costs  consisted  primarily of commissions  paid to sales  associates as well as
marketing and  advertising  expenses  associated with key products and services.
The  increase in selling  costs can be  attributed  primarily to the increase in
sales of products and services from new and existing sales  associates.  Selling
costs  have  increased  as a  percentage  of  sales  for the nine  months  ended
September 30, 2003 and 2002.


                                       25
<PAGE>

   General and Administrative

   General and  administrative  expenses for the nine months ended September 30,
2003 and 2002 were  $5,246,503 and  $2,727,968,  respectively,  representing  an
increase of 92%. The Company's  general and  administration  expenses  consisted
primarily of salaries  and wages,  professional  fees,  rent,  travel  expenses,
payroll taxes, telephone expenses and other general and administrative  expenses
necessary to support the  operations of the Company in the current  period.  The
primary  reason for the  increase in general  and  administrative  expenses  was
attributable to higher  administrative  wages and legal fees for the nine months
ended September 30, 2003. The Company pays 40% of net earnings before taxes into
a profit sharing pool that is divided equally among three executive  officers of
the Company and its subsidiaries.

   Non-recurring Expenses

      Non-recurring  expense for the nine months  ended  September  30, 2003 and
2002  was  $0  and  $169,578,   respectively.   Non-recurring  expense  in  2002
represented  back  wages due to EPMG's  employees.  This  cost  resulted  from a
completed  examination  of the  Company's  labor  practices by the United States
Department of Labor. The period of examination covered the Company's  operations
from May 2000 to May 2002.

   Income Taxes

The Company  accrued  $471,890 and $357,048 for income taxes for the nine months
ended September 30, 2003 and 2002, respectively.  The Company's effective income
tax rates were 39% and 36% for the nine  months  ended  September  30,  2003 and
2002, respectively. In its 10-QSB filing for the period ended June 30, 2003, the
Company did not accrue income taxes as  management  believed at that time that a
portion of the write-down in goodwill (See Note B in the "Notes to the Condensed
Consolidated  Financial  Statements")  provided  an offset to Net Income for tax
purposes.  The Company now believes  that the  write-down  in goodwill  does not
provide  an offset to Net  Income  for tax  purposes.  The  $471,890  income tax
accrual recognizes the full amount of tax liability without consideration of the
write-down  in  goodwill.  The Company has  retained a tax expert to confirm the
Company's conclusion.

   Net Income

   We had net income of $738,084  for the nine months ended  September  30, 2003
compared to net income of $573,516 for the nine months ended September 30, 2002,
an increase  of 29%.  The  increase  in net income was due to overall  increased
revenues and better cost  controls.  Net income  increased  over the  comparable
period in 2002  primarily  due to a loss on  investment  securities  during  the
comparable period in 2002.

   Related Party Transactions

   Relationship  with ESI. In  September  2002,  Energy  Professional  Marketing
Group,  Inc. (EPMG), a wholly-owned  subsidiary of the Company,  entered into an
Opportunity and Strategic  Alliance  Agreement with Education  Success Institute
(ESI).  Under the agreement,  EPMG purchases  sales leads from ESI. ESI is owned
and operated by Ethan A. Willis and James R. Garn, each of whom serves as a vice
president  and  director  of EPMG and served as an officer  and  director of the
Company prior to September 26, 2003.  Under the agreement,  with respect to cash
sales made by EPMG to sales leads  generated by ESI, gross sales after a reserve
of 4% are divided  66% to EPMG and 34% to ESI.  The  Company  believes  that the
agreement is the product of arm's length  negotiation  between the parties.  The
Company was  generating a significant  portion of their sales leads  internally;
however,  this was generally  unprofitable  for the

                                       26
<PAGE>

Company and the decision was made to outsource the  generation of sales leads to
ESI. The Company paid ESI a total of $2,044,027  for sales lead  generation  for
the  three  months  ended  September  30,  2003and  $3,894,816  for  sales  lead
generation  for the nine months  ended  September  30, 2003.  In  addition,  the
Company reserved for potential returned sales from ESI in the amount of $296,140
as of September 30, 2003. Also, revenue received by the Company for ESI's use of
merchant accounts, office supplies and rent totaled $39,876 for the three months
ended  September  30, 2003 and $72,554 for the nine months ended  September  30,
2003.

      Liquidity and Capital Resources

      At  September  30,  2003,  the  Company had cash and cash  equivalents  of
$3,857,987,  an increase of $2,519,642  from December 31, 2002. At September 30,
2003, the Company had net working capital of $1,425,205 compared to net  working
capital of $680,490 at December 31, 2002. The ratio of current assets to current
liabilities  decreased to 1.37 at  September  30, 2003 from 1.45 at December 31,
2002.  Cash  provided by  operations  was  $2,836,595  for the nine months ended
September 30, 2003. The primary  reason for the positive  operating cash for the
nine months ended  September 30, 2003 can be attributed to the Company's  higher
sales volume  during the first nine months of 2003.  In addition,  the Company's
primary  merchant  service  company  ceased  holding a percentage  of each sales
transaction  as a reserve  against  future  cancellations,  which has positively
impacted  cash in the current  quarter.  The Company also  experienced  non-cash
prepaid  expenses and non-cash  expenditures  of $97,667  during the nine months
ended September 30, 2003, which also positively  effected cash. The Company paid
down its note  payable  and line of credit  balances  by a net amount of $90,637
during the nine months ended September 30, 2003. The Company  anticipates paying
down additional notes payable amounts during 2003.  Stockholders' equity amounts
to $2,945,751 as of September 30, 2003.

       The  Company  issued  80,000  shares of its Series B  preferred  stock to
certain directors of the Company as prepaid executive compensation and executive
compensation at a stated value of $1.00 per share in the first quarter 2003. The
Company recorded non-cash executive  compensation of $60,000 for the nine months
ended  September  30,  2003,  related to these  Series B preferred  shares.  The
remaining $20,000 will be incurred during the fourth quarter of 2003.

       The Company  issued  233,333  shares of its common stock during the first
quarter  2003 for  prepaid  public  relation  services  to be provided in future
periods.

       The Company  issued  133,333  shares of its common  stock as a charitable
contribution during the first quarter 2003.

       The Company  issued  39,702  shares of its common stock for  professional
services provided during the first quarter 2003.

      The Company  issued  49,231  shares of its common  stock for  professional
services provided during the second quarter 2003.

      The  Company  expects  that its  existing  cash  resources  and cash  flow
generated from operations will be sufficient to meet its operating  requirements
and ordinary capital expenditure needs during the next twelve months.

   Trends


                                       27
<PAGE>

   The following is a description of certain  trends,  events and  uncertainties
that may affect the Company's future financial results. Due to the potential for
change in factors  associated with our business,  it is impossible to predict or
quantify  future  changes in the Company's  business,  results of operations and
financial  condition.  See  "-Cautionary  Statement  Concerning  Forward-Looking
Statements."

   Resignation of Garn & Willis and Threatened  Litigation. As disclosed in Part
II, Item 1, James Randolph Garn and Ethan Andrew Willis  resigned as Officers of
the Company and as members of the Company's Board of Directors and have informed
the  Company  that they are  prepared  to file a suit to rescind  the  Company's
December 31, 2001 acquisition from them of the Company's  operating  subsidiary,
Energy  Professional  Marketing  Group,  Inc.,  unless  the  Company  reaches  a
negotiated  compromise with them effecting a rescission of the acquisition.  The
Company  is not  aware  of any  such  complaint  being  filed.  The  Company  is
investigating  this  matter  and the  parties  have  attempted  to  negotiate  a
resolution  of this  matter.  The  commencement  of  litigation  or any  adverse
determination  in such  litigation  could have a material  adverse effect on the
Company's business, financial condition and results of operations.

   SEC  Investigation.  As  disclosed  in Part II,  Item 1, the  Securities  and
Exchange  Commission issued a formal order of investigation  with respect to the
Company, authorizing the investigation of certain securities matters relating to
the Company.  The Company cannot predict the length or potential  outcome of the
SEC investigation,  or the potential impact of the investigation on the Company.
If the SEC's investigation  results in any formal adverse  determination,  which
may include a fine or other remedies, the Company's financial condition, results
of operations and business could be materially  adversely affected.  The Company
has incurred,  and may continue to incur,  significant  legal and other costs in
connection with this investigation.

       Reliance on Education Success Institute,  Inc. (ESI). As disclosed in the
"Related Party Transactions"  section above, the Company has increasingly relied
on ESI to provide the Company with sales leads.  As a percentage  of the overall
sales leads  provided to the Company for the three  months ended  September  30,
2003,  89% of the leads were  provided  by ESI.  This is compared to 57% for the
three months ended June 30, 2003.  ESI is owned by James Randolph Garn and Ethan
Andrew Willis,  who have threatened  litigation  against the Company relating to
the Company's December 31, 2001 acquisition from them of the Company's operating
subsidiary,  Energy  Professional  Marketing Group,  Inc. If the lead generation
provided by ESI were to cease for any reason, the Company's financial condition,
results of operations and business could be materially adversely affected.

      Internet Marketing Programs.  A substantial portion of the Company's sales
are  developed  through  marketing  programs on the  Internet.  In the Company's
experience,  specific marketing programs or methods of marketing on the Internet
generally have limited periods of  effectiveness.  The Company may not rely upon
any single marketing  program or method of marketing for any significant  period
of time. In order to continue to market effectively on the Internet, the Company
must continue to adapt its current marketing  programs and develop new effective
programs.  Any failure by the Company to continue to develop effective  Internet
marketing  programs  could  have a  material  adverse  effect  on the  Company's
business, results of operations and financial condition.

     Retention  of Sales  Personnel.  The  Company's  business is  substantially
dependent  upon the  Company's  ability to attract  and retain  effective  sales
personnel.  Any  substantial  turnover among sales  personnel or the loss of key
sales personnel could have a material adverse effect on the Company's  business,
results of operations and financial condition.

   Valuation of the 2002 Sale of Business Development Series for Stock.


                                       28
<PAGE>

As noted in Note C - Investment Securities, the Company has retained a valuation
firm to  determine  the value of the 875,000  shares of  preferred  stock of the
Knowledge  Transfer  Systems,  Inc.,  as of the  time of their  transfer  to the
Company  on  September  23,  2002,  to  determine  the tax  consequences  of the
transaction.  The results of this  valuation  cannot be  predicted at this time.
However,  should  the  valuation  be  substantially  lower  than the  previously
reported  amount,  the  Company may need to restate its SEC filing for the third
quarter  of 2002 and for the 2002  year.  In the  event  such a  restatement  is
required  the Company  expects the effect to be limited as the entire  amount of
this consideration was written off at the end of 2002. However, if the valuation
of the  preferred  stock  exceeds  approximately  $300,000,  the Company will be
required to accrue tax liability relating to the excess.

Cautionary Statement Concerning Forward-Looking Statements

   Certain statements contained in this Quarterly Report on Form 10-QSB that are
not statements of historical  fact may constitute  "forward-looking  statements"
within the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  as
amended.  These statements are subject to risks and uncertainties,  as described
below.

   Examples of forward-looking  statements include,  but are not limited to: (i)
projections  of revenues,  income or loss,  earnings or loss per share,  capital
expenditures,  the payment or  non-payment of dividends,  capital  structure and
other financial items,  (ii) statements of plans and objectives of the Company's
management or Board of Directors,  including plans or objectives relating to the
Company's products or services, (iii) statements of future economic performance,
and (iv) statements of assumptions  underlying the statements  described in (i),
(ii) and (iii). Forward-looking statements can often be identified by the use of
forward-looking  terminology,  such as  "believes,"  "expects,"  "may,"  "will,"
"should," "could," "intends," "plans," "estimates" or "anticipates,"  variations
thereof or similar expressions.

   Forward-looking  statements  are not  guarantees  of  future  performance  or
results. They involve risks, uncertainties and assumptions. The Company's future
results of operations,  financial  condition and business  operations may differ
materially from those expressed in these forward-looking  statements.  Investors
are cautioned not to put undue reliance on any forward-looking statement.

   There are a number of  factors  that  could  cause  actual  results to differ
materially from those  discussed in the  forward-looking  statements,  including
those factors  described below.  Other factors not identified  herein could also
have such an effect. The Company provides a detailed  discussion of risk factors
in various  SEC  filings,  including  its Form  10-KSB for the fiscal year ended
December 31, 2002, and readers are encouraged to review these filings. Among the
factors  that  could  cause  actual  results  to differ  materially  from  those
discussed in the forward-looking statements are the following:

  o  the outcome of the current  dispute between the Company and Garn and Willis
     regarding the acquisition of Energy  Professional  Marketing Group, Inc. by
     the Company from Garn and Willis;

  o  the Company's ability to generate sales leads in a cost-effective manner;

  o  the  Company's  ability  to  develop  strategic  relationships  with  other
     businesses;

  o  the level of competition in the Company's industry;

  o  the rate of growth of the Internet and online commerce;

                                       29
<PAGE>

  o  the Company's ability to manage rapid growth in its business;

  o  customer spending patterns;

  o  the mix of products sold to customers;

  o  the mix of net sales derived from products as compared with services;

  o  the  Company's  ability to develop new products  and services  that keep up
     with rapid technological change;

  o  the Company's ability to attract and retain qualified personnel;

  o  the Company's ability to retain senior management and other key employees;

  o  the outcome of the current SEC investigation involving the Company;

  o  the  effects,  if any, of the  valuation  of the 2002 Sale of the  Business
     Development Series eLearning Software for stock

  o  changes in general economic conditions.

   All  statements  herein are made as of the date of this  report.  The Company
does  not  undertake  to  publicly  release  any  revisions  to  forward-looking
statements to reflect events occurring or information obtained after the date of
this report.


Item 3.  Controls and Procedures
         -----------------------

   The Company maintains  disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934, as amended)
that are  designed to ensure that  information  required to be  disclosed in the
Company's  reports under the  Securities  Exchange Act of 1934,  as amended,  is
recorded,  processed,  summarized and reported within the time periods specified
in the  Securities  and  Exchange  Commission's  rules and forms,  and that such
information  is  accumulated  and  communicated  to  the  Company's  management,
including  its  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate,  to allow timely  decisions  regarding  required  disclosures.  Any
controls and procedures,  no matter how well designed and operated,  can provide
only  reasonable  assurance of achieving  the desired  control  objectives.  The
Company's  management,  with the  participation of the Company's Chief Executive
Officer and Chief  Financial  Officer,  has evaluated the  effectiveness  of the
design and operation of the Company's  disclosure  controls and procedures as of
September 30, 2003. Based upon that evaluation and subject to the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
design  and  operation  of the  Company's  disclosure  controls  and  procedures
provided  reasonable  assurance that the disclosure  controls and procedures are
effective to accomplish their objectives.


                                       30
<PAGE>

   In  addition,  there was no change in the  Company's  internal  control  over
financial  reporting that occurred  during the quarter ended  September 30, 2003
that has materially affected,  or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                       31
<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------

      Resignation of Garn & Willis and Threatened  Litigation.  On September 26,
2003, the Company  received,  by certified mail and hand delivery,  letters from
James  Randolph  Garn and Ethan Andrew  Willis  stating that each was  resigning
immediately as an Officer of the Company and as a member of the Company's  Board
of Directors  (the  "Letters").  The Letters also indicate that neither Garn nor
Willis is resigning  from  positions as an officer or director of the  operating
subsidiary,  Energy  Professional  Marketing Group, Inc. (EPMG). The Letters did
not state a reason for the resignations of Garn or Willis;  however, the Company
did receive a Memorandum  dated September 26, 2003  ("Memorandum")  from the law
firm of  Holme  Roberts  & Owen  LLP,  which  represents  Garn and  Willis.  The
Memorandum  alleges that Garn and Willis are  entitled to rescind the  Company's
December  31, 2001  acquisition  of EPMG from Garn and Willis  because they were
defrauded in connection with this acquisition.  This acquisition was reported in
the Company's  Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 15, 2002.  The  Memorandum  states that Garn and Wills are
prepared to file a suit to effect this  rescission  unless the Company reaches a
negotiated  compromise  with  Garn and  Willis  affecting  a  rescission  of the
acquisition.  The Company is not aware of any such  complaint  being filed.  The
Company is investigating this matter and the parties have attempted to negotiate
a resolution  of this matter.  The  commencement  of  litigation  or any adverse
determination  in such  litigation  could have a material  adverse effect on the
Company's business, financial condition and results of operations.

   SEC Investigation.  As previously disclosed, on June 24, 2003, the Securities
and Exchange  Commission  ("SEC")  issued a formal order of  investigation  with
respect to the Company,  authorizing  the  investigation  of certain  securities
matters  relating  to the  Company.  The SEC staff has  taken the  testimony  of
certain  officers of the Company and has informed the Company that it intends to
take additional testimony. The SEC staff has also issued additional requests for
the voluntary  production of documents.  Prior to the issuance of the order, the
Company had voluntarily  provided  documents and information to the SEC staff in
response to informal,  non-public inquiries by the staff. The Company intends to
fully cooperate with the SEC in its investigation.

      The  Company  cannot  predict the length or  potential  outcome of the SEC
investigation,  or the potential impact of the investigation on the Company.  If
the SEC's investigation results in any formal adverse  determination,  which may
include a fine or other remedies, the Company's financial condition,  results of
operations and business could be materially adversely affected.  The Company has
incurred,  and may  continue  to incur,  significant  legal  and other  costs in
connection with this investigation.

      In addition,  the Company has formed a committee of independent  directors
of the Company to  investigate  the matters  raised by Grant  Thornton  LLP in a
letter to the Company dated April 4, 2003, which is filed as Exhibit 99.2 to the
Current Report on Form 8-K filed by the Company on April 24, 2003. The committee
is also authorized to investigate  such other matters relating to the Company as
it deems advisable.

      IMI  Litigation.  On or about  September  5, 2003,  a lawsuit was filed by
Independent Marketing,  Inc. (IMI) against certain employees of the Company. The
lawsuit was filed in the Fourth Judicial District Court of Utah County, State of
Utah as  Case  No.  030403929.  While  the  Company  was  initially  named  as a
Defendant,  the  Company was not named in the  Amended  Complaint  filed in this
lawsuit,  In the lawsuit,  IMI is claiming  that these  employees  have breached
certain  employment and non-compete


                                       32
<PAGE>

agreements  and IMI is  seeking  compensatory  damages  and  injunctive  relief.
Although  the  Company is not a party to the  litigation,  because  the  lawsuit
affects certain employees of the Company, some or all of whom are key employees,
the  Company's  operating  results and  competitive  position  may be  adversely
affected  in  the  event  of  a  Court  ruling  which  limits  those  employees'
involvement with the Company.

      The Company is subject to various  other claims and lawsuits  from time to
time in the ordinary  course of business.  Management  does not believe that the
outcome  of these  other  matters  will have a  material  adverse  effect on the
Company's financial condition, results of operations or business.


Item 3.   Defaults upon Senior Securities
          -------------------------------

     (b) There has not been any  material  arrearage in the payment of dividends
on any preferred  stock.  The Company has withheld a dividend payment of 137,942
shares of common stock payable on Series A Preferred  Stock to two  stockholders
in connection with a dispute with such stockholders.


Item 6. Exhibits and Reports on Form 8-K.
        ---------------------------------

      a.  Exhibits

          The exhibits required by this item are listed in the Index to Exhibits
          set forth at the end of this Form 10-QSB.

      b.  Reports of Form 8-K

          During  the period  covered  by this  report,  the  Company  filed the
          following report on Form 8-K:

               On October 3rd,  2003, the Company filed a Current Report on Form
               8-K regarding the receipt of letters of resignation from officers
               and directors  James Randolph Garn and Ethan Andrew  Willis,  and
               the receipt of a Memorandum dated September 26, 2003 from the law
               firm of Holme  Roberts  & Owen  LLP,  which  represents  Garn and
               Willis.  The Memorandum alleges that Garn and Willis are entitled
               to rescind the  Company's  December 31, 2001  acquisition  of the
               Subsidiary  from Garn and Willis  because they were  defrauded in
               connection with this acquisition. The Memorandum states that Garn
               and Wills are  prepared to file a suit to effect this  rescission
               unless the Company reaches a negotiated  compromise with Garn and
               Willis affecting a rescission of the acquisition.


                                       33
<PAGE>




                                   SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                          INNOVATIVE SOFTWARE TECHNOLOGIES, INC.

Date:    November 19, 2003                /s/ Douglas S. Hackett
                                          ------------------------
                                          Douglas S. Hackett
                                          President, Chief Executive Officer
                                          and Director

                                          /s/ Linda W. Kerecman
                                          ------------------------
                                          Linda W. Kerecman
                                          Chief Financial Officer





                                       34
<PAGE>

                                INDEX TO EXHIBITS

Exhibit
Number                              Description
------                              -----------

3.1            Amendment to the Articles of Incorporation of Innovative Software
               Technologies, Inc.*

3.2            Articles of  Incorporation of Innovative  Software  Technologies,
               Inc., as amended.*

3.3            Certificate  of  Designation  of the Series A Preferred  Stock of
               Innovative Software Technologies, Inc. (incorporated by reference
               from Exhibit 2.2 to the  Company's  Current  Report on Form 8-K/A
               filed March 14, 2002).

3.4            Certificate  of  Designation  of the Series B Preferred  Stock of
               Innovative Software Technologies, Inc.*

3.5            By-laws of Innovative Software  Technologies,  Inc. (incorporated
               by reference from Exhibit 3(b) to the Company's  Annual Report on
               Form 10-KSB for the year ended December 31, 1999).

4.1            Specimen  Certificate of Common Stock  (incorporated by reference
               from Exhibit 4(a) to the  Company's  Annual Report on Form 10-KSB
               for the year ended December 31, 1999).

4.2            Articles  FOURTH and FIFTH of the  Articles of  Incorporation  of
               Innovative Software Technologies,  Inc., as amended (incorporated
               by reference  from Exhibit 3.2 to this  Quarterly  Report on Form
               10-QSB).

4.3            Certificate  of  Designation  of the Series A Preferred  Stock of
               Innovative Software Technologies, Inc. (incorporated by reference
               from Exhibit 2.2 to the  Company's  Current  Report on Form 8-K/A
               filed March 14, 2002).

4.4            Certificate  of  Designation  of the Series B Preferred  Stock of
               Innovative Software Technologies, Inc. (incorporated by reference
               from Exhibit 3.4 to this Quarterly Report on Form 10-QSB).

4.5            Sections  3 - 17,  28,  39 - 46  and 51 - 53 of  the  By-laws  of
               Innovative Software Technologies, Inc. (incorporated by reference
               from Exhibit 3(b) to the  Company's  Annual Report on Form 10-KSB
               for the year ended December 31, 1999).

4.6            Financing   Agreement   dated  January  25,  2001  among  Iwasaka
               Investments Limited, Shane Hackett and Hackett Media, Inc.*

                                       35
<PAGE>

4.7            Amendment to Finance  Agreement  dated  December 31, 2001 between
               Iwasaka Investments Limited and Innovative Software Technologies

     Executive  Compensation Plans and Arrangements:  Exhibits 10.2, 10.3, 10.4,
10.5 and 10.6 to the  Quarterly  Report on Form 10-QSB for fiscal  quarter ended
September 30, 2003


10.1           Opportunity and Strategic  Alliance  Agreement dated September 1,
               2002 by and between Energy Professional Marketing Group, Inc. and
               Education Success, Inc.*

10.2           Employment  Agreement  dated  April 15, 2001  between  Innovative
               Software Technologies, Inc. and Douglas S. Hackett.*

10.3           Employment  Agreement  dated  December  31, 2001  between  Energy
               Professional Marketing Group, Inc. and James R. Garn.*

10.4           Amendment dated July 15, 2002 to the Employment Agreement between
               Energy Professional Marketing Group, Inc. and James R. Garn.*

10.5           Employment  Agreement  dated  December  31, 2001  between  Energy
               Professional Marketing Group, Inc. and Ethan A. Willis.*

10.6           Amendment dated July 15, 2002 to the Employment Agreement between
               Energy Professional Marketing Group, Inc. and Ethan A. Willis.*

10.7           Indemnity  Agreement  dated  August 17, 2001  between  Innovative
               Software Technologies, Inc. and Douglas Shane Hackett.*

10.8           Indemnity Agreement/Hold Harmless Agreement dated August 17, 2001
               among Innovative Software Technologies,  Inc. and Scott Mehaffey,
               Shawn M. Thomas, Margie Hackett and Douglas S. Hackett.*

10.9           Indemnity  Agreement  dated  August 17, 2001  between  Innovative
               Software Technologies, Inc. and Margie Hackett.*

10.10          Indemnity  Agreement  dated  August 17, 2001  between  Innovative
               Software Technologies, Inc. and Scott Mehaffey.*

10.11          Indemnity  Agreement  dated  August 17, 2001  between  Innovative
               Software Technologies, Inc. and Margie Hackett.*

10.12          Indemnity  Agreement  dated  August 17, 2001  between  Innovative
               Software Technologies, Inc. and Shawn M. Thomas.*

10.13          Indemnity  Agreement  dated  January  9,  2002  among  Innovative
               Software Technologies, Inc. and Ethan Willis and Randy Garn.*

10.14          Indemnity  Agreement  dated  August  16,  2002  among  Innovative
               Software Technologies, Inc. and Ethan Willis and Randy Garn.*

                                       36
<PAGE>

10.15          Indemnity  Agreement  dated  August  15,  2002  among  Innovative
               Software Technologies, Inc. and Douglas Shane Hackett.*

10.16          Director  Indemnification  Agreement  dated  September  15,  2003
               between Innovative Software Technologies, Inc. and Peter Justen

10.17          Director Indemnification  Agreement dated August 14, 2003 between
               Innovative Software Technologies, Inc. and Peter M. Peterson

10.18          Director  Indemnification  Agreement dated August 4, 2003 between
               Innovative Software Technologies, Inc. and William E. Leathem

21             Subsidiaries of the Registrant.*

31.1           Certification  of  Chief Executive Officer of Innovative Software
               Technologies, Inc. dated November 19, 2003.

31.2           Certification of Chief Financial  Officer of Innovative  Software
               Technologies, Inc. dated November 19, 2003.

32.1           Certification of Chief Executive  Officer of Innovative  Software
               Technologies, Inc. dated November 19, 2003, which is accompanying
               this  Quarterly  Report  on Form  10-QSB  for the  quarter  ended
               September  30,  2003 and is not  treated as filed in  reliance on
               Section 601(b)(32) of Regulation S-B.

32.2           Certification of Chief Financial  Officer of Innovative  Software
               Technologies, Inc. dated November 19, 2003, which is accompanying
               this  Quarterly  Report  on Form  10-QSB  for the  quarter  ended
               September  30,  2003 and is not  treated as filed in  reliance on
               Section 601(b)(32) of Regulation S-B.

99.1           Resignation  Letter dated  September 26, 2003 from James Randolph
               Garn to the Company.**

99.2           Resignation  Letter  dated  September  26, 2003 from Ethan Andrew
               Willis to the Company.**

99.3           Memorandum  of Holme  Roberts  & Owen  LLP  dated  September  26,
               2003.**


* Incorporated by reference from the exhibit to the Company's  Quarterly  Report
on Form 10-QSB for the fiscal  quarter  ended June 30, 2003 which bears the same
exhibit number.

** Incorporated by reference from the exhibit to the Company's Current Report on
Form 8-K filed with the  Commission  on  October  3, 2003  which  bears the same
exhibit number.


                                       37